Economic Update | Week Ending 10/18/13

With as much government change and speculation this past week as we’ve had–Syd’s update on how the markets are doing couldn’t come at a better time. Here’s what he had to say…

This week was a dramatic one as the government waited until nearly the last possible moment to reach an agreement and both avoid default and reopen the government. While this is good news, it is not a permanent solution and there is a chance that we could be back in the same position facing another stalemate in mid-January. For now all is returning normal and September’s job’s numbers will be announced next week.

The Dow finished up on the week, closing at 15,339.65 up 1.07% from last week’s 15,237.11 close. The Nasdaq and S&P 500 had their best week since July as investors cheered a double-digit revenue rise from Google. The Nasdaq closed at 3,914.28 a gain of 3.23% from last week’s 3,791.87 close. The S&P 500 was up 2.42% for the week, closing at 1,744.50 after last week’s close of 1,703.20.

However there are still some concerns regarding the strength of the economic recovery and the possibility of increased government turmoil. Chinese credit agency, Dagong Global Credit Rating cut its credit rating for the U.S. from A to A-minus saying that the deal struck by Congress failed to solve the core issue, which they feel is a dysfunctional unreliable government. US based Fitch Ratings also issued a warning on US debt credit ratings, but didn’t cut the credit rating.

All in all preliminary estimates are that the shutdown cost the government about $5 billion, and cost the economy about $25 billion. It is unknown how much impact it will have on the economy moving forward. Economists have lowered expectations on growth, sales, and profits.

The 10-year treasury note spiked up as high as 2.75% on Tuesday as the shutdown wore on and default loomed but after an agreement was reached it settled back down, closing at 2.6% down from last week’s 2.7%. The one-month note which had been as high as 0.32% on Tuesday settled back down to 0.01% on Friday. Unfortunately, the 30 day and other short term bonds sold in the last two weeks will cost millions in higher interest payments and actually expands the deficit!

As news of an end to the government shutdown broke interest rates began to shift upward slightly although many believe that the continued discord on Capitol Hill has put the economy at risk. It is widely believed that any immediate plans for a taper in the Federal Reserve’s bond and mortgage buying program under the stimulus program are now on hold. This will keep interest rates on mortgages down longer. When economic data comes in over the coming months we will have a better idea of what the impact to the economy this shutdown and risk of default caused. When we know what the actual impact will be it will be easier to predict what the Fed will do.

The Freddie Mac Weekly Primary Mortgage Market Survey showed the 30-year fixed rate was up slightly to 4.28% from 4.23% last week. The 15-year rate rose to 3.33% from 3.31%. A year ago this week according to the survey, the 30-year rate was at 3.37% while the 15-year rate was at 2.66%. Today the 30 year conforming rate is about 4.125%, the 15 year conforming is about 3.25%. The high balance and jumbo rates are around 3.625% for 15 year and 4.5% on 30 year loans.

The latest information from the California Association of Realtors (C.A.R.) showed that California home sales declined for the second straight month in September. Sales in September were down 5.1% from a revised 434,910 in August and down 2.6% from a revised 424,000 in September 2012. The statewide median price of an existing, single-family detached home was down 2.8% from August’s median price of $441,330 to $428,810 in September. September’s price was 24.4% higher than the revised $344,760 recorded in September 2012, marking the 15th straight month of double-digit annual gains. The available supply of existing, single-family detached homes for sale rose in September to 3.6 months, up from August’s Unsold Inventory Index of 3.1 months. The index was 3.7 months in September 2012. The median number of days it took to sell a single-family home also increased to 29.6 days in September from 28.8 days in August, but was down from a revised 39.2 days in September 2012. For Los Angeles the median sold price in September was $459,020 up 3.2% from August’s $444,950 and up 23.1% year over year from $373,020 in September 2012.

DataQuick’s September report for the six counties in the Southland area (Los Angeles, Orange County, Riverside, San Bernardino, San Diego, and Ventura) showed that prices fell 0.8% last month (to $382,000) but up 21.3% over last September. In the usual fall slowdown the report showed that the number of sales was also down over 17% from August but up 7% over last September. In Los Angeles specifically, the number of sales was up 5 % over last year and the median price was up 25% to $425,000 from $340,000.

The baffling development is that we are actually seeing another uptick in activity. It seemed prices were leveling in August and September. We even saw fewer surprisingly high sales prices and inventory was increasing. In the last two weeks we are seeing another surge in activity, more multiple offers, lower inventory levels, and some unusually high sales which looks like another across the board price increase! I would not have expected this given that consumer confidence has dropped, and because the housing market usually slows this time of year. I am at a loss to explain this.

Have a great weekend!

Syd

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